Who or What is the Economy?

Our temptation when asking this kind of a question is to jump right into the fray with everyone else.  We always start with a feeling that everyone else knows more about it than we do and we are playing “CATCH-UP”.  This is where we get over-powered by economists, politicians and political pundits.  They bury us in very complex things and tell us it is much too complex for the common person to understand.  It is not unusual for political people to pit their Nobel Prize winning economist against the other guy’s expert who has equally impressive credentials.

The unspoken message is “It’s too complex for you to understand-go back to your life”. Or in the more popular expression, “It’s the economy, stupid!”

Let’s try a different approach.

Start by assuming that you are the only person on the earth.  You have to work to feed yourself.  If you don’t do it, it doesn’t happen. (very important!)

Suppose there is a fruit tree from which you get your food.  You have to expend your resources, time and energy, which we call labor, to get the fruit from the tree.  Your compensation is the fruit which you can now consume to sustain yourself.  This is the activity which gives rise to the expression “the fruits of your labor”.

This is the basic building block of the thing we call the economy.  Without people doing something there is no economy.  If there were no people on earth, there would be no “economic activity”.

Now, we know that the thing we call our economy is far more extensive and complex than our one man example.  But there are some very important things that we can learn from this example which remain true, no matter how complex an economic system might become.

The first economic truth that we can observe is that, in terms of an economy, nothing happens unless someone does it.  The basic event that we call economic activity involves a human being expending their personal resource of time and energy, their labor, to produce a result.

This is true in our one man example.  It remains true if you examine your family as an economy.  It continues to hold true when you look at your community, your state, your country, or the world.  It holds true whether you involve the Government or not.

The basic economic truth is this: Nothing is produced, no economic result is achieved, unless a human being uses his or her personal labor resource to achieve that result.

This answers the question we began with.

In your life, YOU are the economy.

In your family, you are an integral part of that economy.  The same is true in each successively larger economy, you just become a smaller part as a percentage of the whole.  But there can be no doubt, when someone such as your parents or your Government is talking about the economy, they are talking about you and how your labor resource is going to be used.